Conway’s QuickTake: Week of July 26, 2021
Here’s What Happened Last Week:
U.S. Equity Markets
• U.S. stocks rose last week, recovering from Monday’s sell-off. Market strength was relatively narrow and concentrated within many of the tech platform companies.
• Growth stocks well exceeded value constituents across market caps. This is the fifth consecutive week that this occurred, and the Russell 1000 Growth Index now is ahead of the Russell 1000 Value Index year-to-date.
• Within the S&P 500 Index, the communication services, consumer discretionary and IT sectors all outperformed based on relative strength in the FANGAM names. The energy sector lagged after OPEC and other exporters agreed to increase production.
• Small-caps and large-caps were close in-line last week. While small-caps led markets for much of the year, recent small-cap underperformance has eroded that lead.
• The small-cap Russell 2000 Index was off 10% from prior highs briefly last Monday. This was the Index’s first 10% correction in over a year.
• Trading volumes are historically light as we enter August. Last Thursday’s volume was the second lowest of the year.
International Equity Markets
• Developed, international markets were slightly positive while emerging market equities were sharply negative over the week.
• European stocks rose on optimism around the upcoming corporate earnings season the European Central Bank’s (ECB) commitment to continuing dovish monetary policies.
• Japanese stocks fell over the week amidst the start of the Summer Olympic Games. Many fear that the games could worsen the country’s coronavirus outbreak.
• Chinese stocks continued to face pressure over potential regulatory intervention from the government. Weakness in Chinese tech names weighed on emerging market indexes.
Credit Markets (Perspectives from our partners at Piton Investment Management)
• U.S. Treasuries inched higher following slightly lower yields on the week.
• The U.S 10-year yield fell to 1.276% Friday versus 1.290% at the end of last week. That said, yields hit their lowest level since February of 1.189% last Monday, reflecting a risk-off sentiment.
• Corporate spreads were little changed over the week. Investment grade and high yield funds recorded $1.19 billion and $742 million of outflows, respectively.
• Corporate borrowers were hesitant to issue new debt as the weekly amount was well below estimates due to the rising fear of the delta variant.
• Benchmark municipal yields were steeper on the week as the front end was a bit stronger. Supply/demand imbalances and persistent inflows continue to provide a ceiling on yields.
• Municipal funds had their 20th consecutive week of inflows adding $1.73 billion.
U.S. Economic Data/News
• Concerns about the rapid spread of the delta variant spooked markets early in the week. Cases and hospitalizations rose in many parts of the country with those with the lowest vaccination rates often the most affected.
• Outside of some concerns that corporate profits might be near peak levels, much of the economic data reported last week was positive.
• U.S. housing starts rose more than expected suggesting that the residential construction market could be stabilizing. Existing home sales also rose for the first time in five months as more inventory hit the market.
• Last week was a busy one for corporate earnings with over 15% of the S&P 500’s companies reporting. There were several notable earnings beats/upside surprises from companies including Verizon, Coca-Cola, J&J, Twitter, and Snap Inc.
International Economic Data/News
• Many European economies maintained reopening plans despite a continued increase in coronavirus cases.
• The ECB revised its guidance indicating that it would keep interest rates at their present levels or lower until it sees stable 2% inflation over the medium-term. This could include short periods where inflation is above the target 2% level.
• Japan is leaning heavily into the renewable energy push. The Japanese government has ambitions to achieve carbon neutrality by 2050 and aims to reduce its dependence on nuclear power in favor of other renewable sources.
• Chinese regulators reportedly plan to exempt Chinese companies listing in Hong Kong from having to first seek approval from China’s cybersecurity regulator. This move would encourage companies to have their initial public offerings in Hong Kong over the U.S., where many of the country’s largest tech companies are listed.
Wednesday, July 28, 2021
• Fed Open Market Committee Rate Decision
Thursday, July 29, 2021
• US Jobless Claims
Friday, July 30, 2021
• US PCE and Core PCE (Inflation)
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, GS Weekly Market Monitor
This commentary was written by Craig Amico, CFA®, CIPM®, Associate Director, Noreen Brown, CFA®, Chief Wealth Strategist and Steven Melnick, CFA®, Associate Director at Summit Financial, LLC., an SEC Registered Investment Adviser (“Summit”), headquartered at 4 Campus Drive, Parsippany, NJ 07054, Tel. 973-285-3600. It is provided for your information and guidance and is not intended as speciﬁc advice and does not constitute an offer to sell securities. Summit is an investment adviser and offers asset management and ﬁnancial planning services. Indices are unmanaged and cannot be invested into directly. The periodic returns are represented by the following indices: large cap value by Russell 1000 Value TR Index, large cap blend by Russell 1000 TR Index, large cap growth by Russell 1000 Growth TR Index, mid cap value by Russell Mid Cap Value TR Index, mid cap blend by Russell Mid Cap TR Index, mid cap growth by Russell Mid Cap Growth TR Index, small cap value by Russell 2000 Value TR Index, small cap blend by Russell 2000 TR Index, and small cap growth by Russell 2000 Growth TR Index, international developed by the MSCI EAFE NR USD Index, Emerging Markets by the MSCI EM NR USD Index, U.S. Aggregate Bond by the BBgBarc US Agg Bond TR USD Index, U.S. Municipals by the BBgBarc Municipal TR USD Index, and Corporate High Yield by the BBgBarc US Corporate High Yield TR USD Index. The S&P 500 Index is a market capitalization-weighted Index of 500 widely held stocks often used as a proxy for the stock market. It measures the movement of the largest issues. Standard and Poor’s chooses the member companies for the 500 based on market size, liquidity, and industry group representation. Included are the stocks of eleven different sectors. The Nasdaq Composite Index is a large market capitalization-weighted index of more than 2,500 U.S.-domiciled stocks. The index’s composition is heavily weighted to the information technology sector, with consumer services, health care and financials the next most prominent industries. The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 1000 Index measures the performance of the large cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index representing approximately 90% of the total market capitalization of that index. It includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of global developed markets, excluding the U.S. and Canada. The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of developed markets countries in Europe. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI Japan Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of Japan. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage-backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment-grade fixed-rate debt markets that excludes USD-dominated securities. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The IHS Markit Flash US Composite PMI Output Index is a monthly summary report concerning the changes in the working conditions of private companies in the manufacturing and service sectors. The indicator is based on monthly surveys of purchasing managers working in approximately 1,000 private companies of the US manufacturing sector. Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Consult your financial professional before making any investment decision. FANGAM is an acronym representing Facebook, Apple, Netflix, Google, Amazon, and Microsoft Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.